Treasury 4.0: The technology gap is widening

Treasury 4.0: The technology gap is widening

Why treasury organisations run the risk of falling behind.

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We wrote a position paper on Treasury 4.0 just over one year ago. If you thought, "that was that", and assumed there would now be a few years to ease slowly towards Treasury 4.0, then you were mistaken. I was also mistaken about the tremendous speed of new technical developments, which were only on the horizon last year but thanks to enormous investment are now already in proof-of-concept or implementation phases. Will blockchain technology become relevant for corporate treasury? The answer is a firm yes.

Banks are working on implementing this for trading and SWIFT in the area of nostro account reconciliation. Thinking this through casts doubt on the future of the account statement in its current form. For treasuries currently without an internal trading platform or who haven't connected this to the treasury management system via automated interfaces, blockchain technology is still some way off.  For treasury, it is not primarily about the technology behind the development but rather the philosophy upon which Treasury 4.0 is based: robotics process automation (RPA). I predict that with entry and settlement of 80-90% of FX transactions in companies, from exposure determination to internal and external sales, needing only supervision via RPA, the workflow will thus operate fully automatically.

Of course this also includes the associated reporting function. In the era of data analytics, the manual generation of reports is an anachronism that CFOs will not tolerate from their treasurers for much longer. They want to calculate complex scenarios in which treasury, controlling and accounting figures can be clearly related to one another. Obviously, this means that treasury cannot rely on having a proprietary reporting platform. Integration with business processes and systems is crucial.

Regarding liquidity planning, too, RPA together with data analytics and predictive analysis means that manual planning processes will become a thing of the past. The foundation for this should be laid today. This means treasury possessing the in-depth knowledge for transforming data collected from corporate and budgetary planning and other sources. This knowledge, translated into algorithms, serves as the foundation for all future developments.

Are providers of treasury management systems prepared for such change? Time will tell. Some are still anxious about their systems being seen as open platforms for core functionalities, to which third party providers can easily dock to create apps with functionalities that TMS does not offer.

But why is this important? Not only because this technology reduces process costs, but also because it is necessary if treasury is to be in a position to react promptly to geopolitical, economic and financial changes or shocks (e.g. Brexit) using scenarios.

And also because it is foreseeable that ongoing regulatory developments will mean that companies, processes and methods need to continually adapt. One example scenario that springs to mind is of banking regulations stipulating that contractual parties can only conclude agreements via a central counterparty.

Therefore, those who cannot access the cash position at the touch of a button will find it increasingly difficult to keep up. Those who cannot give a status report on future and accounting-related currency exposure today will not have control over complex scenarios tomorrow. And those who today cannot adequately predict liquidity developments will not be seen as an equal partner alongside controlling and accounting departments.

Further contributions on the topics related to those in this article will follow over the coming months.

Source: KPMG Corporate Treasury News, Edition 63, January 2017
Author: Carsten Jäkel, Partner, cjaekel@kpmg.com

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